It’s been a tough race, but don’t empty your NET stock just yet
Over the past month, the content delivery network’s shares have fallen sharply, without exceeding expectations. Cloudflare (NYSE:REPORT) is somewhat of a relative exception. NET stock has unfavorable valuations for good reason. Its prospects are better than its competitors.
Investors should keep a close eye on Cloudflare, especially if the stock drops enough to create a better entry price.
October’s correction would partly explain Cloudflare’s drop last month. Fastly’s (NYSE:FSLY) the disappointing outlook didn’t help either.
October 28, Posted quickly 42.6% year-over-year revenue growth to $ 71 million. It only achieved $ 800,000 in EBITDA, an improvement over the loss of $ 5 million last year. Because the total number of clients increased only modestly, from 1,951 in the second quarter of 2020 to 2,047 in the third quarter, the shares sold.
Akamai Technologies (NASDAQ:AKAM) reported strong quarterly growth October 27 results but the shareholders expected more. Akamai enjoyed high and sustained traffic levels for its Edge platform. Demand for its security products has also helped the company exceed analysts’ expectations.
So, if markets ignore companies that are still growing, Cloudflare stocks are likely to underperform in the short term.
A closer look at NET stock
October 12, Cloudflare announcement Cloudflare One. This platform secures and connects businesses and their remote teams anywhere and on any device. By using a zero trust security model, the company facilitates the network-as-a-service solution of a workforce.
Homeworking gives rise to an increase in hacking attacks. Businesses can protect themselves by securing devices, applications, and networks. Co-founder and CEO Matthew Prince said his product will move customers away from the legacy corporate network to a secure economy and “work from anywhere”.
In its press release, the company said remote employees get a secure connection every time on Cloudflare One. It protects customers from zero-day attacks using “Cloudflare’s remote browser isolation technology that creates a gap between a browser and a user’s endpoint.”
All this technical jargon will appeal to investors. For example, CrowdStrike (NASDAQ:CRWD) recently traded at a market cap of over $ 30 billion. Conversely, Cloudflare is rated at around half that level.
On Wall Street, analysts have a neutral price target, although most view the stock as a “buy”. Average price target is $ 52.50, data shows compiled by Tipranks.
If seasonality patterns are any guide, then NET stock is expected to rise in November, drop more than 10% next month, and then rise again from January to March 2021.
In the last quarter, Cloudflare signed agreements with larger customers. This had 15% of Fortune 1000 companies using its product. As long as businesses replace their on-premise hardware solution and embrace digital transformation, this software infrastructure company will continue to experience impressive revenue growth for years to come.
There are potential short-term risks that investors should watch out for. Flagship networks (NASDAQ:LLNW) had a disappointing third quarter.
Revenue rose 15% to $ 59.2 million, a record for this small business. Yet he lost $ 4 million based on GAAP. So, if Limelight faces stiff competition, it may reduce its price or quality to take market share from companies like Cloudflare. Akamai and Fastly can do the same.
As long as the CDN market doesn’t become a commodity and Cloudflare differentiates itself from the rest, margins shouldn’t go down. Cloudflare’s focus on cloud security will prevent it from competing on price alone.
Your takeaway meals
Software infrastructure stocks have seen a rally throughout the year, rewarding investors who timed the exit and sold at the top. If market volatility continues and sellers continue to profit, Cloudflare will be underperforming. Readers who still have the action have nothing to do. The long-term outlook is strengthening.
Disclosure: As of the date of publication, Chris Lau does not have (directly or indirectly) any position on any of the titles mentioned in this article.